Promulgated on 22 April 2018, the Fugitive Economic Offenders Ordinance, 2018 aims to 'preserve the sanctity of the rule of law in India' by putting in place deterrence measures against 'fugitive economic offenders' who evade criminal trials for economic offences in India.

Responding to the clamour for tough action against absconding offenders, particularly those involved in financial misdemeanors and wilful defaulters of bank loans, the Fugitive Economic Offenders Ordinance, 2018 (Ordinance) was promulgated by the President of India on 22 April 2018. Subsequently, various Rules under the Ordinance were notified with effect from 24 April 2018.

The Ordinance comes into effect immediately (i.e. with effect from 22 April 2018) and will have to be placed before the Parliament during the upcoming monsoon session for formally legislating it into a statute.

Focus of the Ordinance

As the name of the Ordinance suggests, it applies only to cases of economic offences/ frauds. The Ordinance provides for measures to deter 'economic offenders' from evading the process of law in India by staying outside the jurisdiction of Indian courts.

A 'fugitive economic offender' is defined as an individual against whom an arrest warrant in relation to a 'Scheduled Offence' has been issued by an Indian court, and who has left India, or being abroad refuses to come to India to avoid criminal prosecution. A 'Scheduled Offence' in relation to which the arrest warrant is issued, refers to an offence specified under the Schedule of the Ordinance, where the total value involved in such offence is INR 100 crore or more. These 'Scheduled Offences' include:

  • Cheating and counterfeiting under the Indian Penal Code, 1860 (IPC);
  • Dishonour of cheques under the Negotiable Instruments Act, 1881;
  • Customs evasion under the Customs Act, 1962;
  • Insider trading under the Securities and Exchange Board of India Act, 1992;
  • Money-laundering under the Prevention of Money Laundering Act, 2002 (PMLA);
  • Illegal gratification/ bribery to public officials under Prevention of Corruption Act, 1988 (PoCA); and
  • Conducting of business for a fraudulent or unlawful purpose under the Companies Act, 2013.

The Special Courts under the Ordinance are the same as the Court of Sessions designated as Special Courts under the PMLA. Before declaring an individual a 'fugitive economic offender', the Special Court is required to issue a notice to the accused individual, demanding appearance. Apart from following diplomatic channels with contracting countries (whether under a Mutual Legal Assistance Treaty (MLAT) or multilateral treaties), such a notice may also be served by e-mail to the accused individual. This statutorily acceptable electronic mode of service in criminal proceedings is the first of its kind, and considerably reduces the time-period involved in following diplomatic channels.

Once declared a 'fugitive economic offender' by the Special Court, the Ordinance provides for two significant deterrence measures:

(a) The Special Court can order immediate confiscation of the proceeds of crime and/ or other assets owned by the fugitive economic offender, whether in India or abroad. The term 'proceeds of crime' continues to have a wide scope (much like in the case of the PMLA) to include any property derived or obtained, directly or indirectly, by 'any person' as a result of criminal activity relating to a Scheduled Offence, or the value of any such property, or where such property is taken or held outside India, the property equivalent in value held within India or abroad.

While provisions for confiscation are already provided under the PMLA and the Code of Criminal Procedure, 1973 (CrPC), such confiscation can be ordered only as the final step after the conclusion of the trial, which usually takes several years. Until then, the government could have only attached the property. Attachment, as differentiated from confiscation, does not have the effect of vesting the property in the government's name and consequently does not allow for its sale. However, the Ordinance gives powers to order such confiscation within a few months. Thereafter, upon the expiry of 90 days from the order of the confiscation, the government may take steps to sell the property.

(b) Courts and tribunals in civil proceedings may: (i) disallow such individual from putting forward or defending any civil claim; and (ii) disallow any company or limited liability partnership from putting forward or defending any civil claim, if such individual files the claim on behalf of the company or the limited liability partnership, or if such individual is a promoter or key managerial personnel or majority shareholder of the company or has a controlling interest in the limited liability partnership.

Observations

(a) The Ordinance is only a deterrence measure against a 'fugitive economic offender' and does not provide any penal measures for the offences alleged to have been committed – those continue to be a matter of trial under the relevant statutes (IPC, PMLA, PoCA, etc). The deterrence measures especially relating to the immediate confiscation (and consequent sale) of the property, could have a significant effect on an accused individual's willingness to submit to the jurisdiction of Indian criminal courts.

(b) A criminal trial cannot proceed without the accused being present before the court in person. Criminal trials, therefore, suffer delay for several years since it is practically impossible for any country to be able to force a person abroad (whether national or not) to face prosecution before its courts. Apart from the high-profile Vijay Mallya and Nirav Modi examples, the Indian courts have on several occasions expressed their constraints on this. Recently, in the Aircel-Maxis 2-G spectrum case, a Special CBI Judge noted "[i]t is obvious that when warrant is issued against an accused residing or staying in a foreign country, the chances of execution of warrant are very bleak. In such a situation, no useful purpose would be served by keeping the case live on the register of this Court."

The Ordinance is neither intended towards, nor capable of, solving this inherent problem in the system. Measures to force presence are already found in the CrPC, MLAT or multilateral treaties, either in the form of extradition or red-corner notices of the Interpol or diplomatic assistance. That said, the threat of immediate confiscation (and consequent sale) of property may provide a partial solution to this problem.

(c) The Ordinance mentions that in the proceedings before the Special Court, an accused is permitted to appear through counsel and file its pleadings through such counsel. This liberty may have the effect of defeating the underlying purpose of the Ordinance insofar as it can give considerable breathing space to an accused to present their case without returning to India.

(d) Issuance of an arrest warrant is a condition precedent for the authorities to initiate proceedings under this Ordinance. Under the CrPC, an arrest warrant must be preceded by issuance of summons and sufficient opportunity to appear, which can span up to several months.

Apart from the inescapable attorney-created procedural delays (for which the Ordinance gives room), it would have to been seen if the threat of confiscation (and consequent sale) of property and barring of remedies in civil proceedings would prove to be enough, especially when an absconder may weigh these outcomes with the possibility of facing prolonged prosecution and possible arrest in India. Effective and robust implementation of the Ordinance could allow the government to swiftly recover the money lost by the exchequer or the public as a result of white-collar crimes by selling the property so confiscated.

Since its promulgation, there have already been news reports that the Enforcement Directorate may institute proceedings under the Ordinance against Nirav Modi and Mehul Choksi, which will be the litmus test for the 'deterrence effect' of the Ordinance.

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